Governing complex externalities: property rights for sharing radio spectrum

Abstract

Radio spectrum has become central to technological progress and economic growth. While, command-and-control regulatory institutions of the early twentieth century were considered necessary to counter endemic market failure, recent regulatory reform towards a market regime with flexible licensing creates an interesting environment for examining how complex externalities are managed by private contracting in decentralized systems. We present empirical evidence suggesting that adoption of a more “Coasean” policy regime in radio was followed by far more crowded wireless markets than were formed under rigid administrative structures. This is observed by contrasting pre-cellular mobile phone system outcomes in the U.S. (1946–1978) with the later evolution of cellular networks (1983–2015). The cellular marketplace exhibits exceedingly more complicated network coordination under liberalized property ownership rules. We nest our empirical findings within a conceptual framework derived from theoretical literature on property rights.